New rules under RERA or the Real Estate (Regulation and Development) Act are applicable to residential and commercial development. Under RERA, realty developers and agents have to register with respective state regulatory authorities

New rules under RERA or the Real Estate (Regulation and Development) Act to regulate the real estate sector, protect home buyers and ensure the timely execution of projects with an aim to boost investor confidence and stamp out illegal practices will apply from today. They are applicable to residential and commercial development and make it mandatory for all projects and brokers to be registered with the real estate regulator who will oversee transactions and settle disputes. Only seven states have, however, moved to implement the new rules as yet.

Here’s your 10-point cheat-sheet:

RERA is a model law, which means the Centre can recommend it but it is up to the states to formulate and pass their own laws, since land is a state subject.

Till last weekend, only six states had notified the rules – Uttar Pradesh, Gujarat, Odisha, Andhra Pradesh, Maharashtra, Madhya Pradesh and Bihar. The Housing Ministry had last year notified the rules for the five Union Territories and for the National Capital Region of Delhi.

The Centre has described RERA as the beginning of a new era where the consumer will be king. Union housing minister Venkaiah Naidu said rights and obligations of buyers, developers and real estate agents are clearly defined in the Act and any aggrieved party can seek redressal for violation of terms of agreement by the other party.

On reports that some states have diluted key provisions of RERA, Mr Naidu said that the states have assured his ministry that these will be corrected.

Under RERA, real estate developers and agents have to register with their respective state regulatory authorities by July 30. They must also deposit 70 per cent of the funds collected from buyers in a separate bank account to be used only for the construction of the project, to ensure timely development. New projects must have all approvals before launch.

Promoters must have the consent of two-thirds of the buyers in a project before making any change in the number of units or other structural changes. RERA prescribes penalties, including imprisonment on developers who delay projects or do not deliver on promises. Developers are required to disclose their project details on the real estate regulator’s website, and provide updates on construction progress.

RERA also states that any structural or workmanship defects brought to the notice of a promoter within a period of five years from the date of handing over possession must be rectified by the promoter. For delayed possession, developers need to pay an interest rate of 2 percentage points above State Bank of India’s lending rate.

RERA also prescribes imprisonment of up to three years for errant developers. A developer can sell only on the basis of carpet area which will help home buyers understand what they will be paying for each square foot they will get for use.

In the last few years, sluggish economic growth and delays in getting approvals stalled several projects, leaving buyers waiting for their homes and developers holding high debts. It also put a strain on investors such as banks, private equity firms and non-banking financial companies.

Analysts say the real estate sector will be able to attract higher institutional funding as the Act will bring in much desired transparency in the sector, which contributes about 9 percent of India’s gross domestic product, boosting buyer confidence.

One of the older localities of Chennai, with a glorious past, Egmore is seeing many new projects across categories.

Who doesn’t want to a buy home of their own especially when you are a first time home buyer?

Vijayaragavan Shantharam from Chennai approached the Magicbricks real estate Forum asking, “I have been living in Dubai from the past three years and now I intend to come back to my mother land. Being born and brought up in Egmore, Chennai, I would definitely like to invest here preferably in a 3BHK apartment. Though my father has a 2BHK apartment in the same locality and I have no plans to shift to Chennai anytime soon, I would want to buy a home of my own. Please suggest if Egmore is a worth-investing locality? Help me understand more about the locality in terms of returns on investment and advantages of investing here.”

Why is it profitable to invest in Egmore?

There are a host of reasons to invest in the locality. Some of them are: Egmore, in Chennai, is not only a fully developed residential area but a commercial and retail hub too The Egmore Railway Station connects the locality to other parts of the city.

Several residential and commercial areas such as Chintadripet, Nungambakkam, Purasawalkam, Anna Salai and Chetput surround the locality. The National Highway 114 passes through the locality and ensures its connectivity to other areas. The state-run Metropolitan Transport Corporation (MTC) buses frequently pass through the locality and connect it within and with other parts of the city via road.

The locality also has a suburban train station on the Chennai Beach Tambaram railway line The Chennai International Airport is situated within 20 km distance and can be reached via the Trichy-Chennai High way and the Chennai-Nagapattinam Highway Trichy-Chennai Highway.

Mahant Rajan, an existing resident of the locality says, “Egmore is centrally located and has proximity to all commercial and retail establishments. The other advantage of the locality is its social infrastructure such as schools, banks, restaurants, markets, vegetable shops, grocery stores and other day-to-day requirements.”

According to Magicbricks, the locality has been rated as 4.7 out of 5 on the basis of buyer’s feedback for offering good environment to live, decent commuting facilities and the social and physical infrastructure.

Opportunity realty

The emerging growth corridors of Chennai provide buyers many investment opportunities. Unlike other cities, Chennai’s reaction to the real estate sector was mixed last year. While sales experienced a good momentum in the beginning it was rickety towards the end with a dip in new launches by the end of the year.

According to recent Magicbricks data, among the localities in Chennai that have the potential to witness growth in property prices are Adyar which tops the list with 11.9 percent and prices expected to grow by 11.3 percent in the next three months, followed by Kodambakkam at 8.9 percent with prices expected to grow by 5.0 percent. Nungambakkam has been rated at 7.9 percent with prices expected to grow by 10.0 percent, T Nagar with 2.2 percent and Mylapore with 0.6 percent decline with prices expected to grow by 3.8 percent in the next three months.

Investment hotspots

The Investment Hotspots report by Magicbricks Research indicate that upcoming projects being built in the city’s emerging nodes that enjoy growing employment opportunities, improving infrastructure and increasing population. These new nodes are laden with realty potential in 2017 and 2018. The emerging corridors of growth in Chennai are Chromepet-Tambaram, GST and OMR.

Chromepet tambaram

It is the most well connected corridor in Chennai as it is very close to Central Chennai. Medavakam has the highest share of consumer demand mainly due to its connectivity and proximity to Velachery, a well-established residential area. As property prices are high in Velachery, people prefer to buy in Medavakkam where average prices are in the range of Rs 4,500 per sq ft as compared to Rs 8,000 per sq ft and above at Velachery. Chromepet which is the centre of the corridor have the next highest demand. Best bedroom configurations to buy are 2BHK apartments. The second most preferred is the 3BHK category in the corridor. This means that the localities in and around Nanmangalam have 2BHK property and consumers are also showing interest in this category. Areas such as Medavakkam and Velcahery have independent homes and builder floor apartments with 2 and 3BHK units.

GST Road

Residential and commercial establishments dot both sides of GST. There is special emphasis on SEZs with almost five of them already set-up and a few more in the process of getting approvals. When it comes buying homes, Guduvancheri has the highest share. This is due to its proximity to SRM University, Estancia IT Park and the Ford Plant. The area has a healthy rental yield of about 4 percent.There are more number of ready-tomove-in apartments in Guduvancheri in comparison to other localities. Urapakkam, located next to Guduvancheri, has the next highest demand in the corridor owing to the same reasons as Guduvancheri.Two BHK apartments account for around 70 percent of the total demand. There is also a good demand for independent houses with more bedrooms for renting as these are usually converted to Paying Guest accommodation. These fetch good ROI and also have good demand from ITITeS people working in the many SEZs and IT Parks here.

OMR

This corridor has the highest demand among all corridors. Apart from residential and office spaces, it also has hospitals, residential schools and shopping establishments. The locality with highest consumer demand is Sholinganallur. This is mainly due to its connectivity to Medavakkam and ECR. Two BHK properties here fetch good rents and have limited availability in the corridor. Perumbakkam, next to Sholinganallur, has the next highest demand as the locality has good social infrastructure and hospitals.

Similar to other corridors, 2BHK apartments are the most preferred. About 55 percent people looking to buy the format here. It is also observed that most of the 3BHK apartments that are purchased in the corridor are mostly for self-occupation. Interestingly, although only 2 percent people are looking at buying 4BHK and higher units, about 29 percent people are looking at rental property in this category. While there is demand for all kinds of property it is highest for 2-3 BHK.

Flex it!

Homes that can transform as per the requirements of its owners might have seemed like a dream up until a few years back. But with the concept of flexi-homes catching up that is no longer the case.

Cities are expanding at an unprecedented rate by the day.

But surprisingly, spaces seem to be shrinking. To address this growing concern, there have been a number of out-of-the box developments in the real estate industry over the years. And the concept of flexi-homes seems to be the top contender in the race.

Like the name suggests, flexi-homes are homes that provide innovatively designed living spaces which enable home owners to alter and customise internal layouts like floor plans, sizes of rooms and other architectural elements, depending on their needs. According to Siddhart Goel, senior director, research services, India, Cushman & Wakefield, the trend has caught on in India and is likely to grow in the future. “Earlier, customers hardly had a say when it came to home buying. They had to accept the designs offered by the builders and after possession and customise their homes at additional costs. These costs would often mount up to quite a lot and would also take up months of their time, plus the added inconvenience. The advent of flexi-homes helps them save on both these elements,” he says.

For developers who offer such projects, this is a win-win scenario since a niche segment like this not only helps them stay ahead of their counterparts but also brings in more customers, especially from the HNI segment where customers give high priority to the options available to them in terms of how they want their house to be. Flexible interiors use both architectural elements as well as innovative furniture to incorporate multiple uses. Spaces that can extend like a collapsible wall that make extra room when you have company over or bed rooms that double up during the day, flexi-homes are catering to home buyers seeking living spaces to suit specific spatial needs, together with the right ticket size, social infrastructure, connectivity and amenities.

“Evolving customers are interested in adaptable homes that can meet changing spatial and privacy requirements over time while repurposing spaces to suit multiple utilitarian requirements. For this, homes need to be designed smartly so as to use all available area efficiently. At the same time, interiors, including furniture, should be planned intelligently, in order to facilitate flexibility and utility within smaller unit areas,” says Vivek Sharma, business head, Mahindra World City, Chennai.

Expandable homes have the advantage that the customer is able to invest in spaces in the preferred residential communities of their choice and later, according to future requirements, add to the existing layout. “The construction plans of such homes are required to provide, in advance, the specific structural details and specifications needed to easily accommodate subsequent additions with the least amount of disruption to daily family activities and limited retrofitting of the existing building,” adds Sharma.

For the home owner, these flexi options have given the word ‘space’ a new meaning altogether. One that can be altered and transformed whenever required and often in a matter of minutes. “Investing in a home is a big step. It will definitely make a big difference in buying trends if even a compact residential unit can meet multiple needs. Young families usually do not need a lot of space. But in the future, additional space will become a necessity and having an expandable home eliminates the hassles of selling the existing home and relocating to a larger place,” says Avantika Prabhu, an IT consultant. The concept of both these options together might seem a little farfetched in the current scenario, but with many developers toying with the idea, one can hope that it will soon be a valid option.

Govt seeks powers to levy GST on all rental income

HIGHLIGHTS

Currently, service tax is levied on rental income from commercial property only

GST rate on housing is expected to be pegged at 18%

Rent from residential premises may be exempted from GST.

The government is arming itself with powers to levy goods and services tax (GST) on all rental income but is unlikely to impose the tax on individuals renting out homes. Currently, service tax is levied on rental income from commercial property, but not levied on residential property.

The Central GST (CGST) Bill — one of the four legislations introduced in Parliament — provides that any lease or letting out of the building, including a commercial, industrial or residential complex for business or commerce, either wholly or partly, is a supply of services.

Waman Parkhi, a senior tax consultant at KPMG, however, said that in the final rules, the government may exempt residential rental income from GST. The government has introduced the bill which will be followed by detailed rules where exceptions and exemptions are likely to be built in, he said. If the existing system of not taxing rental incomes from residential property under service tax has to be continued, then the same provision of exemption has to be introduced in GST too.

“Any law has to be read with the rules. It should not be seen in isolation,” said MS Mani, senior director at Deloitte. He said that at best the government can impose GST on residential property taken on rent by companies, which can then use it as a tax credit. In any case, GST kicks in at Rs 20 lakh and only some residential property fetches that kind of annual rent.
GST, which is likely to be rolled out from July 1, will subsume central excise, service tax and state VAT among other indirect levies on manufactured goods and services. A senior urban development ministry officer clarified that GST will not lead to any additional tax on end-users. He said finance ministry has already accepted it inprinciple.GST rate on housing is expected to be pegged at 18% with a final decision expected to be announced over next few weeks. Developers and tax experts said this rate will be acceptable to all the stakeholders as it will not lead to any increase in the final price of property. CREDAI president Getamber Anand said that at present the levy is around 12% of project cost paid as excise and Vat. In addition, at the time of sale, buyers pay around 6% of the price as service tax and Vat. So, the total net outgo is around 18%.

At present, while levying service tax on constructed house, an abatement of 60% of the total value is allowed to exclude the value of land and other goods such as bricks, cement and other material from the ambit of service tax. But under the new regime, a consultant said, this would not be required.

Affordable housing is exempted from service tax. To pass on current benefits to buyers, Parkhi said that GST on the ready to move-in houses in the affordable segment will have to be pegged at zero. The GST Bill has also clearly defined that the tax will not be levied on sale and purchase of immovable property like land, house and other real estate assets, which are not under construction.

HIGHLIGHTS

The Finance Bill 2017 restricts set-off of loss towards second home against other heads of income up to Rs 2L under Sec 71 of the I-T Act

Currently, there is no such limit for set-off of loss from house property, which is mainly the difference between the rental income and interest on home loan

NEW DELHI: Ruling out rollback of the proposal to restrict tax incentive for second home+ to Rs 2 lakh per annum, revenue secretary Hasmukh Adhia on Saturday said there is no point in subsidising purchase of second property by those who have surplus funds.

Moreover, he added that the tax incentive for second home loan borrower is being “virtually misused.”

Citing limited resources, he said it is prudent to subsidize first-time buyer and not the second property owner who is not staying in that but earning income from the second unit.

The Finance Bill 2017+ has restricted set-off of loss towards second home against other heads of income up to Rs 2 lakh under Section 71 of the Income Tax Act.

Under the present dispensation, there is no such limit for set-off of loss from house property, which is mainly the difference between the rental income and interest on home loan. In other words, a buyer could deduct the entire net interest paid on the home loan.

“Government resources are very very limited. The question is should the government be subsidizing first-time home owners who are occupying own house or should the government be subsidising the second acquisition of the property by people who have got surplus money to invest in real estate,” Adhia said while addressing industry representatives here.

He cited an example: “If I have already my own house, I buy a new property by taking a bank loan of Rs 1 crore, the interest on it is Rs 10 lakh per annum and I rent it out to somebody who gives out Rs 3 lakh as rent, the remaining Rs 7 lakh you could offset against your salary income or business income.”

The loss to the government for the second house were almost one third of that, he said, adding that it came to about Rs 3 lakh in addition to Rs 2 lakh advantage.

“So, why should the government bear the cost of second house acquisition, that was the question. We have a lot of people to be given affordable housing, we need to help them out… so the revenue loss was huge and people were virtually misusing it,” he said.The Finance Bill, 2017, proposes to restrict such set-off of house property loss to Rs 2,00,000 per annum only. Balance loss, if any, will be carried forward to be set off against house property income of subsequent 8 years.
Hence, individual tax payers having loss of more than Rs 2,00,000 will now have a higher tax outgo.

“In line with the international best practices, it is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head ‘Income from house property’ against any other head of income shall be restricted to Rs 2 lakh for any assessment year,” the Finance Bill 2017 said.

“However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.”

Builders will be eligible for tax and subsidy incentives, and institutional funding at affordable rates.

Union Finance Minister Arun Jaitley, in the Budget 2017-18, has proposed to grant ‘affordable housing’ the coveted infrastructure status to facilitate higher investment in the sector and, in turn, achieve the government’s ambitious goal of ‘Housing for All’.

The grant of infrastructure status would mean builders will be eligible for many government tax and subsidy incentives, and institutional funding at affordable rates for low cost homes.

The move has evoked mixed response from the sector. Tushad Dubash, Director, Duville Estates, said, “With the infrastructure status, the sector can look at funding through insurance companies, which is a huge alternate sector and opens up a new avenue for real estate funding.”

Issue of land cost

However, Rohit Gera, Managing Director, Gera Developments & Vice President, Confederation of Real Estate Developers’ Associations of India (Pune) said, “The infrastructure status will truly see a big impact only if these lower cost funds are actually made available for acquisition of land. Without this, a large part of the funds required for the affordable segment for the construction will be provided by the end consumer. Large scale capital is not required once the land acquisition is completed and approvals are in place.”

Pointing out that in his Budget proposals last year, he had announced a scheme for profit-linked income tax exemption for promoters of affordable housing scheme and that it had received a good response, Mr Jaitley said he intended to make this scheme more attractive.

In a bid to boost affordable housing, the Budget 2017-18 proposed to ease the condition of period of completion of the projects from current three years after commencement to five years. Besides, measurement norm of affordable housing has been amended to carpet area from built-up area — a move that will expand the area and make more projects eligible.

The Budget also proposes to modify the affordable housing scheme by stating that “instead of built up area of 30 and 60 sq.mtr., the carpet area of 30 and 60 sq.mtr. will be counted. Also the 30 sq.mtr. limit will apply only in case of municipal limits of four metropolitan cities, while for the rest of the country including in the peripheral areas of metros, limit of 60 sq.mtr. will apply.

Refinancing loans

The National Housing Bank will refinance individual housing loans of about ₹20,000 crore in 2017-18, Mr Jaitley said. He added, “Thanks to the surplus liquidity created by demonetisation, banks have already started reducing their lending rates, including those for housing. In addition, interest subvention for housing loans has also been announced by the Prime Minister.”

There are also tax sops for developers struggling with completed but unsold homes, estimated at around six lakh units in eight major cities. “At present, the houses which are unoccupied after getting completion certificates are subjected to tax on notional rental income. For builders for whom constructed buildings are stock-in-trade, I propose to apply this rule only after one year of the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory,” Mr Jaitley said. He also proposed to make several changes in the capital gain taxation provisions in respect of land and building. “The holding period for considering gain from immovable property to be long term is three years now. This is proposed to be reduced to two years,” the Finance Minister said.

“Also, the base year for indexation is proposed to be shifted from April 1, 1981 to April 1, 2001 for all classes of assets including immovable property. This move will significantly reduce the capital gain tax liability while encouraging the mobility of assets,” he added.